Debt to Equity Ratio
A corporation will typically have about 25-30% debt. The debt to equity ratio helps you make sure that the company isn't overly laden with debt. This is important because a company with low debt has options in a recession or other downturns. A company saddled with debt has few options. Everything must go perfect or they are going to default. This does not make running the company an easy job. According to Peter Lynch, look for companies that have no more than 25-30% debt.
To calculate the ratio, take the total debt / shareholders equity. Peter Lynch states that a ratio of 1/3 is normal and a ratio of 4/1 is too high.
As a rule of thumb the debt should not exceed a third of the companys cash.
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